The baby boomer generation is starting to show its age. As the
post-war generation enters its golden years, the need for prescription
drugs has dramatically increased, and pharmaceutical companies have been
working overtime to develop drugs to combat the various ailments of the
Global pharmaceutical sales rose 10% from June 2000 to May 2001,
according to an IMS Health report. But along with an increase in revenue
and major breakthroughs in drugs that treat asthma, AIDS, and diabetes,
the pharmaceutical industry has come under withering public scrutiny
over the cost of prescription drugs.
The price of breakthroughs
A report released in June by consumer advocacy group Families USA, which
received significant play in the media, found that the prices of the 50
prescription drugs most frequently used by seniors rose an average of
22% over the past year, with the annual cost of these drugs now $956.
In addition, two-thirds of these drugs that have been on the market for
five years have had at least five price rises over that period.
Trying to explain why prescription drugs cost so much is front and
center for PR practitioners trying to change media discourse.
"Our prices reflect what it costs to research and develop a drug," says
Merck spokesman Gregory Reaves. "People are under the mistaken
impression that the pharmaceutical industry just plucks an arbitrary
number out of the air to charge for our drugs."
As the pharmaceutical industry is so keen to point out, their spending
on research and development has grown 19% this year, to an estimated
$30 billion (Health Care Financing Administration).
PhRMA, the organization that represents the drug companies, has been
active in talking about the rising levels of the companies' own
It can require from $200-$500 million for a drug to go
from the drawing board through clinical trial, with the process of drug
approval taking anywhere from 12 to 15 years.
Furthermore, the competition from generic drugs and the shrinking window
of time that pharmaceutical companies have to recoup their investments
have also become factors in the rising costs of prescription drugs. Of
every 5,000 drugs that are tested, only about 5% make it to the clinical
trial stage. In other words, the successful drugs must carry the weight
of the failures tested along the way.
"Our side of the story doesn't fit a convenient sound bite," explains
Jeff Trewhitt, spokesperson for PhRMA. "Wanting to have a dramatic story
has caused reporters to make mistakes."
But consumer groups are always ready to counter the idea of a
necessarily large R&D budget. "(The drugs firms) will tell you that the
money goes on research and to make a profit after a long approval
process," says Jennifer Laudano, director of corporate communications
for Families USA.
"The truth is that there are plenty of drugs that have been around for
30 years and have made back their profit, yet the prices still keep
In response, the industry's major message is that prescription drug
costs have risen so much in the last five years because people are using
new drugs to treat sicknesses that weren't formerly treatable (like
drugs to treat arthritis and lower cholesterol).
Also, say the drugs firms, a growing proportion of the rising number of
seniors are taking medications. PhRMA says the reason for the increase
is that consumers are becoming more educated about illnesses, and
because medicines are less invasive than a hospital stay, they are
increasingly becoming the choice for treatment.
"Thirty-five years ago you didn't have certain medicines that you have
today." says Reaves. "The drugs today are better and they combat
problems such as cholesterol and diabetes in new ways."
Major drug manufacturers are also addressing the prescription problem
proactively. Schering-Plough, maker of Claritin, has combated the issue
of drug pricing by working with patients and physicians to determine
patient eligibility for other forms of public and private financial
"We're committed to responsible drug pricing and finding mechanisms to
ensure access to necessary medicines for uninsured patients," says
Roland Asinari, spokesperson for Schering-Plough. "We also strongly
support modernizing the Medicare program."
Tackling the Medicare issue is one of the highest priorities for the
pharmaceutical industry. Getting Medicare to cover more drug costs means
the public is shielded from the actual expense (even if they ultimately
pay via taxes).
"The key to changing the debate on drug pricing is to show that you are
doing something," says Reaves. "Pharmaceutical companies are involved in
ideas and actions, and are trying to do something substantive. We need
to show the public that pharmaceutical companies are taking an active
role in getting Congress to pass responsible Medicare coverage."
PhRMA has also taken a high profile in this debate. "The real issue is a
lack of Medicare coverage," says Trewhitt. "Because seniors and others
lack Medicare, the only cost they know is the pharmaceutical
Medi-care will cover hospital charges, but it won't pay for prescription
drugs. Since seniors have to pay out of their pockets, they believe that
they are being overcharged. It actually cost the system much more to put
people into the hospital than to pay for their prescription drugs. I'm
constantly pointing out to the media that PhRMA wants Congress to pass
expanded drug reform."
Industry giants tackle the issue
One initiative that PhRMA has taken to show the pharmaceutical company's
commitment to the problem of drug pricing is to make a list of
state-by-state pharmaceutical discount programs for needy patients
available on the group's website.
PhRMA has also been active in the UN AIDS pilot program; corporate
philanthropy has been even more relevant to the pharmaceutical industry
since the African AIDS drugs saga earlier this year.
GlaxoSmithKline, maker of Paxil, has addressed the critics by
undertaking various activities in Africa, including working with UNICEF
on a program to help prevention and treatment of HIV transmission from
mother to child. Its oldest program, "Positive Action," is an
international program of HIV education care and community support. Glaxo
also welcomes "preferential pricing," where the prices of patented
medicines are reduced for developing countries.
"People are under the mistaken impression that drug pricing is soaring,
when in fact it's really expenditure and how much people are relying on
these drugs that is growing," says Marry Anne Rhyne, GlaxoSmithKline
spokesperson. "There is an increasing reliance that people have on
medications, and the best medicines in the world can't help you if you
can't afford them. So we believe in working to address the concerns that
many Americans have about drug pricing."
Merck, the maker of Zocor, a blockbuster cholesterol-reducing drug, is
also involved in a number of philanthropic initiatives to address drug
pricing and the shadow it has cast across the pharmaceutical
It has started a program to provide discounts for people in the US
without drug coverage. It also donates Mectizan to countries in central
Africa, where river blindness is a major health problem. Merck has
reduced prices on AIDS drugs in sub-Saharan African countries, and,
since July 2000, has worked with the Bill and Melinda Gates Foundation
to provide anti-retral virus drugs to HIV-positive people in
Pfizer, which has three of the top 10 blockbuster drugs - Lipitor,
Celebrex, and Zoloft - has been sensitive to allegations of drug
gouging. The pharmaceutical company has started giving away Diflucan, a
drug that treats fungal infection complications that arise in AIDS
patients, in 50 of the world's least-developed countries. Pfizer also
works on a program called "Sharing the Care" with the National Governors
Associations to make Pfizer drugs available to the working poor.
"No one plans to be sick, and when they are, they don't plan on spending
lots of money," says Andy McCormick, VP of media relations for
"It can seem excessive when you have to fork over $70 for 10
pills. About a third of seniors lack drug coverage, and when they are on
fixed incomes, they don't have the means to pay for drugs. If we want to
dissolve the issue of drug pricing, we must find a way to have expanded
drug coverage. Modern pharmaceutical are going to only play more of a
role in our lives as the baby boomer generation ages."
More than just the cost
McCormick adds that pharmaceutical companies need to change the focus of
the story to showcase the economic and societal benefits of the
"But there's always going to be some resentment by people who have to
spend money on an illness that they didn't think they were going to get.
Our job is to work harder to tell the public about the competitiveness,
the research, and the other factors that go into making pharmaceutical
Michael Durand, EVP of Porter Novelli's global healthcare practice,
believes that the issue of drug pricing and the criticism it has caused
could be put to rest if pharmaceutical companies would come together and
push for Medicare drug pricing for seniors. "Every 'western' developed
country provides healthcare to its people," says Durand. "It should take
precedence over missile defense and stem cells, because it's of more
This is an issue that we have to face now." He also says that he sees a
distinct lack of leadership to address the problem of drug pricing.
"Instead, the pharmaceutical industry tends to be defensive and doesn't
take the lead and say, 'This is what we're going to do.'"
PhRMA is working to change the mindset from justifying the cost of drugs
from research to value. Instead of saying, "This is how much our
research cost," they are saying, "Look at the health benefits this drug
will give you and how it will save your life."
"Pharmaceutical companies did a good PR job giving drugs to developing
countries and explaining why drugs were more expensive here in the US,"
says C. Daniel Mullins, associate professor of pharmacology at
University of Maryland. "But their argument falls apart when they try
and explain why drugs in Canada cost half as much as they do in the US.
They need to work on that side of things better."
An anonymous source who works with many top pharmaceutical firms gave a
more ominous pronouncement:
"Drug pricing is not a winning proposition. There is a lightning rod
that centers around that topic, and no matter how well-intentioned,
there is always going to be a certain segment of the population that
doesn't believe the pharmaceutical industry when they say drugs cost
what they do for a reason."
TOP SELLING PRESCRIPTION DRUGS
Drug 1999 2000 Increase
Name (Type) Price Price (%)
1 Prilosec (antiulcerant) 130.18 138.57 6.4
2 Lipitor (cholesterol reducer) 78.72 82.58 4.9
3 Prevacid (antiulcerant) 119.98 125.98 5.0
4 Prozac (antidepressant) 103.68 109.87 6.0
5 Zocor (cholesterol reducer) 105.40 112.36 6.6
6 Celebrex (antiarthritic) 80.14 88.93 11.0
7 Zoloft (antidepressant) 78.14 80.55 3.1
8 Paxil (antidepressant) 74.01 78.62 6.2
9 Claritin (oral antihistamine) 64.45 68.06 5.6
10 Glucophage (oral diabetes) 55.28 63.00 14.0
Source: American Institute for Research analysis of Scott-Levin
NOTES: *Prices are average per prescription.